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Will Fixed rates come down as fast as the variable rate?
June 7, 2024 | Posted by: Dashna Joya
The recent economic data released for Canada and the US paints a contrasting picture of their respective labor markets and economic trajectories.
Canada added 27,000 jobs in the latest report. However, the details reveal a concerning shift: 62,000 part-time jobs were created, while 36,000 full-time positions were lost. The unemployment rate in Canada ticked up slightly from 6.1% to 6.2%.
The US economy added 272,000 jobs, significantly surpassing the expected 185,000. Strong job growth in the US implies a robust economy, leading to the expectation that the Federal Reserve may delay rate cuts. This delay contrasts with the potential easing stance of the Bank of Canada.
The loss of full-time jobs and an increase in part-time positions suggest a weakening labor market. This development could prompt the Bank of Canada to consider rate cuts to stimulate the economy. However, deviating too far from the US rate path might weaken the Canadian dollar, making imports more expensive and potentially fueling inflation.
Five-Year Bond Yields increased by nearly 7 basis points today due to uncertainty created by this data, after few days of steep decline. Higher bond yields generally lead to higher fixed mortgage rates. Though this can create some frustration for those waiting for fixed rate to also come down as prime rate is decreasing, it is important to note, that typically variable rate mortgages are lower than fixed rates, currently it is the opposite. It may take some time for fixed rates to reduced further, as more economic data needs to be released to see what the impact of rate cuts will be on our currency/exchange rate and how it will affect inflation.
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